A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

It absolutely amazes me to read some of the comments from trolls on this blog - mocking people for saving, for being frugal, for clipping coupons, for driving 5-year-old cars, for living within their means, for buying things with cash versus credit.

What's happened to our world where 20 year olds live in McMansions and drive Mercedes cars, while making $50,000 a year? How screwed up are we when people rack up insane amounts of debt in order to look successful, when it's so obvious that the only thing they've been successful with is acquiring debt?

The Great Unwinding is also going to be The Great Smack Your Ass and Wake You Up for Generations X and Y. You work your way up in this life, you don't magically just get there without work and without making a decent living (unless your parents are rich of course).

A generation of spend spend spend, me me me, fake fake fake will now learn learn learn. And the credit crunch will be the catalyst.

Just ask any senior about how their grandkids are carrying on with their big houses, big cars, big TVs, and big debt loads - you're likely to get the same answer, "I don't know how they pay for all of that".

Well, they don't pay for a lot of it.

Never before has credit flowed so freely and never before has so much debt accumulated. Never before has it been easier to buy a house. That is, if you don't mind non-traditional mortgage products where no money down is needed and not only can you avoid paying down the principle (interest-only), but you don't even have to pay all the interest due (pay-option).

Of course, as a long-term plan, this looks like it may not work out so well now that housing prices are falling and subprime lenders are falling even faster.

The younger set has been fearless when it comes to taking on new debt over the last ten years. This is likely to change in the next ten years - all part of the Alan Greenspan legacy.

It's too bad that Lemming suicide is a myth - it would have provided a fine analogy for the headlong rush by youngsters toward the dream of homeownership and sure riches. The trouble is that nontraditional mortgage products, subprime lending, short sales, and foreclosures are no myths.

Man, I sure wish we (and the market) had access to some real data, vs. the BS put out by the NAR and Commerce Department.

This new home survey is so worthless, I don't even know where to start. How they can put out a number with a straight face regarding new homes when they know damn straight (just read the homebuilder announcements) that cancellations are running 40% - 50%, yet this report just shows offers, not closed deals.

The price number is also laughable, knowing that builders are offering everything but the kitchen sink to sell dead inventory, but those discounts and incentives aren't recorded here.

At least the MSM is now talking about how laughable the data is (see below). But the headlines are still misleading at best. And today's new home report makes the NAR's report yesterday even more laughable and discredited. Americans, you're being misled, you're being lied to.

Here's your real headline, HP version:

NEW HOME SALES FALL OFF A CLIFF - DOWN 66.6%, REAL PRICES PLUNGE ANOTHER 20%. HUNDREDS OF THOUSANDS OF REIC JOBS DISAPPEAR, HOUSING CRASH OF EPIC AND HISTORIC PROPORTIONS IS UPON US

Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday.

It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years.Sales were down 20.1% compared with January 2006.

The decline in sales was much sharper than expected. The median forecast of economists surveyed by MarketWatch was a drop to 1.08 million units, annualized. See Economic Calendar.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives aren't subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations aren't reflected in the government data, so the reported sales are probably overstated.

Update - I liked this analyst quote later today:

"Let's cut to the chase - these numbers were ugly," wrote Mike Larson, real estate analyst at Weiss Research in Jupiter., Fla. "While the month-to-month changes in new home sales figures can be volatile, the magnitude of the decline is impressive.

When it's over, it's really over. I'm amazed at the swiftness of the subprime implosion, and now come the spillover effects. Less housing demand (and ability to purchase). Lower housing prices. Hundreds of lenders imploding. Hundreds of thousands of REIC out of work. Stockholder and bondholder wipeouts. Hedge fund implosions. Financial market havoc.

Got popcorn? The Great Unwinding is here.

What's remarkable is that Wall Street was surprised by the implosions of lenders NovaStar Financial and New Century Financial. What we don't know is how quickly this mess will impact the economy.

Why does the stock market at large seem not to care about the many problems that exist? My best explanation is this: The stock market, which is normally thought of as a discounting mechanism, doesn't work that way at the moment.

When the market reverts to discounting and ceases to be the price-discovery animal it is today, there will be a tremendous amount of violence on the downside.

Ignorance aside, it pays to state the obvious: The subprime industry was absolutely critical to the inflating of the real-estate bubble. If loans had been made only on a responsible basis -- to people who put money down and looked like they could actually repay the money, irrespective of rising house prices -- that bubble would never have achieved anything close to the heights it did.

That game is obviously over. Let me repeat that -- over. The real-estate market of the past few years will not be seen again in our lifetimes. The only thing we don't know is at what rate this unwinding will play out across the economy and, more importantly (to me), in the minds of the Goldilocks-enthralled community on Wall Street.

"Slowly but surely, people are starting to get it, and slowly but surely, I am starting to think that the tipping point in credit -- via a subprime-generated shambles in CDO (collateralized debt obligation) land -- is closer than anybody imagines."

THE GREAT HOUSING CRASH IS HERE. DUCK AND COVER. LIGHT FUSE AND GET AWAY.

YOU ONLY HAVE DAYS TO PREPARE.

THE EPIC HOUSING CRASH IS UNDERWAY.

THE GREAT UNWINDING IS HERE. THE BIGGEST BUBBLE, EL FINANCIAL MANIA GRANDE, IN HUMAN HISTORY HAS BEEN PIERCED.

IT HATH BEEN FORETOLD.PEACE OUT. GOOD LUCK. FULL STOP.

I hope many of you, not because of HP but because of reality, have made the moves in your lives to prepare not just for what's happening, but for what is to come. The Dow could go back up 500 points tomorrow (it won't), but that's not the issue. The issue is that The Great Unwinding is here. No more BS. No more spin. It's here. So get ready and deal with it.Now I'm going to try to think of tomorrow's winning Lotto numbers. I'll let you know if I come up with anything.

February 27, 2007

"For the last several months I have been hemming and hawing on whether we have reached bottom," said David Lereah, chief economist for the Realtors. He said that the January report was an encouraging sign that the bottom for sales activity was reached last September with sales expected to stabilize this year.

Highest number of vacancies every recorded (goes back 40 years). More unwanted unneeded homes being added to inventory everyday by builders and desperate homedebtors. Demand cratering just as supply overwhelms.

Yup, looks like a bottom to me.

Not.

I don't get people who keep calling bottoms. Sure, you have The Corrupt David Lereah - he's paid to lie. But then you get the Lowes CEO this week saying that even though retail sales at his chain are plummeting, "We are encouraged by indications that our sales trends have bottomed."Man, talk about missing the memo.Even Bob Toll isn't calling bottom anymore, realizing he not only looked the fool last time he did that, but that there's this little thing called the SEC, and this little policy called Sarbanes Oxley, and you can't go out and just tell bald-face lies when you're the company's largest shareholder and CEO. No matter how much you want to pop your stock so you can keep unloading.And finally, with those 2.1 million vacant homes, with millions more on the way, with nobody interested in buying them, my only questions are....How fricking ugly will this get? And what year will we truly bottom?

Vacant Homes For Sale Cloud Economic Hopes

Amid brightening hopes that the U.S. housing market is stabilizing, some economists are zeroing in on a piece of data that could augur badly for the consensus view: the homeowner vacancy rate.

That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.

That brought the national homeowner vacancy rate to 2.7%, up from 2.0% a year ago.

Without all the subprime loan buyers, without the no-down, no-doc, liars-loan crowd, without all the cash-back-at-closing scamsters, without all the flippers, without all the investors, and without all the people betting on future price appreciation, my question is:Who the heck is gonna buy any of those millions and millions and millions and millions of homes for sale?

February 26, 2007

They all sounded so convincing at the time, didn't they HP'ers? The MSM sure thought so. Millions of Desperate Homedebtors sure hoped so. But alas, they were a parade of fools, some corrupt, some stupid, and all wrong.

"The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead."

Then there was the idiot MSN columninst Jim Jubak in June 2005 with this gem:

Why there is no housing bubble. The sky is not falling. Yes, home prices are sky-high, but we really don't have a housing bubble that is anywhere near bursting.

And of course, you have NAR-poodle Nicholas Retsinas at the corrupt Harvard Joint Center for Housing Studies boldly proclaiming in 2002:

Bubbles, of course, do burst; but housing is not a bubble akin to tulips or to Enron or other corporate scandals. It is a concrete product -- a place where people live. And as anybody who has sold or bought a house can attest, it is not an easily fungible commodity.

And Dr. James Smith, the dimwitted and corrupt chief economist for the Society of Industrial and Office realtors, pontificated in April 2005:

There Is No Housing Bubble in the USA - There is no evidence of a housing “bubble” in the United States and housing demand should stay strong for years to come.

"You can't go anywhere without hearing people talk about "the real estate bubble." Such talk drives me to distraction, and I'll tell you why. It's because there is no real estate bubble. Bubbles are for bathtubs."

I hope Americans know a fraud, a liar and a con-man next time they see one. The housing bubble sure brought out the bunch of 'em. And some are still at it. But their day is done. It's over.

* Warn today of a recession but don't say your stupidity was the cause - check

* Go home and admire your Presidential Medal of Freedom - check

Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end.

He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.

Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

Boy, reading the paper today and seeing words like "meltdown" and "panic" I thought I was reading HP, not the MSM.

Yes, folks, the Great Unwinding is here. And now it's being reported in some quarters outside the US - while most of the US MSM sleeps. Don't wan't to upset those advertisers you know...

US mortgage crisis goes into meltdown

Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.

The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.

The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.

Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown.

"It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.

Mr Roubini said: "America faces a 'reverse cycle' where a credit crunch has hit before the slowdown, a rare pattern. Normally, recession comes first, setting off credit troubles in its wake. We have a housing recession, an auto recession, a manufacturing recession, and a real investment recession already present. If all this happening in what the consensus terms as a 'Goldilocks economy', what would happen if the economy slows down?"

The effects of the Great Housing Crash will be enormous. Nearly every aspect of life around the globe will be effected in some way. When you have massive and historic worldwide speculation enabled by massive and historic leverage, and then the ponzi scheme ends, the unraveling will be epic.

I sure wish realtors and regular folks understood all of this. Ignorance is bliss, but only up to a point.

Yes, my friends, loyal HP readers and REIC trolls, our day is here. The housing crash and Great Unwinding is, and will be, the biggest story of 2007. And 2008. And 2009. And 2010...

Worst risk to market? Subprime mortgages

WASHINGTON — Growing trouble in the subprime mortgage industry poses the greatest risk to financial markets right now, according to a survey of business economists to be released Monday.

The forecast by the National Association of Business Economics (NABE), which polled 47 top economists, called the subprime sector a more serious concern than hedge funds, which came in second.

Housing will continue to be the biggest drag on growth. After five years of a boom market, housing starts have plunged in the past year.

More MSM coverage of the Great US Housing Crash over here in the British papers. A bit odd, considering England will suffer a far greater housing crash than even the US one day soon. I guess they want to show the idiots over here that yes, housing prices can fall, ponzi schemes can end.

Repossessions of US homes are set to hit their highest level in decades after the housing slow-down put millions of “sub-prime” borrowers at risk of default. And the impact will be felt by investors worldwide.

One in five mortgages taken out by high-risk creditors in the US in 2005 and 2006 will end in repossession, “exceeding the worst foreclosure experience in the modern mortgage market, which occurred during the ‘oil patch’ disaster of the 1980s”, according to the Centre for Responsible Lending.

Brad Hintz, a banking analyst at Sanford C Bernstein, said: “So far, the fallout looks to be confined to the homeowners, the reputation to some of the brokers who have packaged the sub-prime mortgages into potentially loss-making bonds and the losses to those investors. But the big fear is that investor concern about credit risk spreads from mortgage-backed bonds to the entire fixed-income world. This would, in turn, raise the cost of borrowing across the board as lenders seek to stem a flight to safer government bonds.”

Ben Bernanke, Chairman of the Federal Reserve, is concerned. “We have been following it carefully. It’s obviously very bad for those who borrowed in those circumstances, and it’s not good for the lenders, either, who are taking losses,” he said last week in his semiannual economic report to Congress.

The extent of the fallout may be anybody’s guess, but at the very least the flow of bad news from subprime specialists is likely to continue for some time to come.

I know intuitively Wal-Mart seems harmless. Low prices, efficiency, capitalism, low inflation. Those are all good things, right?Nope. Not when taken to an extreme. Not when an unchecked monopoly overtakes a market.

Wal-Mart folks has destroyed America. You just don't realize it yet, because it sure is fun to get stuff for so much cheaper than it used to be. Especially when so many things are so much more than they used to be (healthcare, college, homes, day care, movies, etc). Wal-Mart seemed like the only way to stay ahead for most people.What people don't realize though is that Wal-Mart has destroyed the middle class. Wal-Mart has destroyed the American manufacturing base, and tens of thousands of small to medium sized American businesses. Wal-Mart has killed the character of American towns. And Wal-Mart caused the housing bubble, by creating a massive trade imbalance which caused China to reinvest their reserves in US t-bills, thus deflating interest rates and inflating home prices.Wal-Mart is evil. And people who shop at Wal-Mart need to see that they're hurting America every time they walk through those doors.Here's an interesting take on the catch-22 caused by our addiction to low prices and Chinese crap.

“The China trade deficit really reflects the state of the global economy: China is the world’s factory and the U.S. is its supermarket,” Gereffi said. “It’s not caused by any nefarious Chinese strategy.” Gereffi said efforts to improve conditions in the U.S. by finding fault with China’s monetary or labor practices are misplaced. Answers to American challenges are best found at home, he said.

“Pressing China to let the yuan appreciate -- the current policy of the American government -- even if successful, would contribute only slightly to an already steady U.S. economy,” he said. “Far more fruitful would be addressing the anxieties of American workers about job security, retirement and health care with new ways of providing the social supports once found in pensions, lifelong employment, company health insurance, Social Security and Medicare.

“Cheap Chinese goods and labor have pitted the American consumer, in love with inexpensive goods, against the American worker, in fear of cheap labor,” Gereffi said. “Unfortunately, these are often two sides of the same coin: America’s workers are also its consumers. It’s time to stop fighting with ourselves on this front

Eagle First was just one enabler of the biggest ponzi scheme ever to hit Arizona, which as many of you know became the flim-flam-scam-o-rama-fake-economy-state during the Late Great Housing Bubble.

This company was just one of many unregulated mortgage broker firms promoting the "cash-back" fraud, and now that politicians and the MSM in Arizona have woken up to the fact that their housing market was all a sham, you'll start seeing company shut downs, arrests, new laws and one hell of a clean up.

Arizona property prices will crash 30% to 50% over the next 36 months, I am sure of it. Their 55% 2005 bubble was a fraud, a scam and a joke. Hundreds of thousands of REIC connected jobs will disappear, the Arizona economy will be devastated, and stucco home ghost towns all over Phoenix and Tucson will emerge.

And the walls come tumbling down. The money ain't gonna get paid back. The Great Unwinding is here.

Regulators have shut down Mesa-based Eagle First Mortgage and its more than 75 Valley branches, citing illegal lending practices.The Arizona Department of Financial Institutions pulled the license of the mortgage firm and its broker, David Sanchez, last week.

Regulators described more than 100 illegal money transactions, loan activities and hiring practices. The firm, one of the largest that Financial Institutions has shut down, has until March 14 to finish any outstanding loans and close its doors

A wave of mortgage fraud started spreading across the Valley last year that could cost lenders millions of dollars and erode values and confidence in Arizona's real estate market and economy. Most of the fraud is coming from cash-back deals that involve obtaining a mortgage for more than a home is worth and pocketing the extra money. But there are other types of fraud such as faking and forging documents and lying about income and other personal information for loans.

It's estimated there are as many as 18,000 unlicensed people taking mortgage applications, negotiating rates and getting loan commissions statewide.

What kind of a country are we when we no longer make anything, we no longer produce, we no longer save, we no longer have the ability to provide for ourselves, and we no longer have the capacity to pay back our debts?

Ah, the luxury of being the greatest debtor in the world with the world's reserve currency. People give us their goods, the result of their hard work and labor, and we give them paper and IOUs, which we have no intention or capacity to pay back.

Keep sending us those televisions, those luxury cars, those ships full of oil. Keep building factories, keep working 'til you drop, keep those ships and containers coming. We'll give you this green stuff in return. That's a fair trade, no?

Man, next you'll hear Bernanke admit that the Fed pumped up money supply and liquidity in order to create a massive housing bubble, which was used to drive consumer spending so as to placate and confuse an American population who had lost their manufacturing base and world competitive position.

But I wouldn't count on it.

Here's the Bank of England last week though, in a stunning admission on their housing bubble cause and effect. What they didn't touch on (yet) is that all asset bubbles deflate, all financial manias die, and all periods of low risk premiums reverse.

Sometimes harshly.

"Investors are likely to take advantage of this ample liquidity and the associated easy credit to purchase other assets, driving risk premiums down and asset prices up," the BoE told parliament’s Treasury Committee on Feb 20th.

"In due course, those higher asset prices may be expected to feed through into higher demand for goods and prices, putting upward pressure on the general price level," the BoE concluded.

There are millions of unwanted, for-sale, wildly overpriced homes in America today. Many are in foreclosure. Many are owned by flippers and fraudsters. Many are sitting empty. Many are owned by regular folks just trying to get out, or into a new home.In addition, sub-prime has completely melted down, severely limiting the buyer pool (including the fraudsters). And every sane person in America knows there was a housing bubble, which ended in 2005, and that we're in a housing crash or "correction" now.So my question, my simple question is...Who is going to buy all those damn homes?Oh dear god is this going to end badly.

February 22, 2007

Hey, someone woke up a writer at Time magazine this week! They actually ran a housing bubble story - go figure. And a really really poor one at that. But hey, it's a start.

We're still waiting (and waiting, and waiting) for that make-good cover. . After all, the housing crash is the biggest story in the country today, and did win the AP business story of 2006. But I guess Time didn't notice that.

What do you think HP'ers, will Time run maybe one of these this summer?

Since early 2000, economists have been sounding the housing bubble alarm with increasing urgency. And while many markets around the country have seen prices drop in the last year, the dire, across-the-board correction that many predicted has yet to materialize.

There are several factors that could cause a real estate bubble to burst, but the most important factor, one that is sometimes overlooked, is buyer and seller sentiment-how we feel about what's likely to be the biggest windfall, or biggest purchase, of our lives.

Our real estate search and browsing patterns provide a window into the minds of buyers and sellers and offer more than a glimpse of their feelings about the current market. Take for example the simple search for "housing bubble." As bad news continues to build around the housing market, you would expect that "housing bubble" searches would be nearing a crescendo. Actually, the opposite is true.

As of the week ending February 17th 2007, searches for "housing bubble" have reached a two year low, only 4.4% of the searches on the same subject that occurred during the second week of June 2005. A media frenzy around a pending correction occurred that very same week, which demonstrates just how suggestible we are, as well as how short our attention spans can be.

Despite the impasse that the data is painting, in the depths of the search tables for this last week are a few terms to keep an eye on, such as "sell my house fast," and "how to stop a foreclosure." If those reach significant volume, signaling an urgency to sell, the housing bubble alarm might finally ring true.

Yes, disinformation, spin, lying and distortion are in their job description. And yes, the MSM doesn't actually "report" anymore, they just copy and paste.

But good god, how dumb do these people think we are? We're in the second inning of a nine inning game and they say it's over. Not.

Here's the latest BS from a Fed member - Janet Yellen, Fed SF president. You won't believe this one. Either she's stupid, a liar or corrupt. Take your pick.

Note to Yellen and friends - you can't spin your way out of a ponzi scheme or financial mania unwinding and crash. This will run its course. No matter what BS you spout. You will look like a fool next year for quotes like these.

I can't stand the guy, I think he all about publicity and selling books, but damn, he's spot-on here. Just like he is about the entitlements disaster awaiting America, and some other great points. Don't throw the baby out with the bathwater they say. And if Mr. Real Estate, Mr. Donald Trump Buddy, says get to gold and cash, well, there's something there...I wonder if he told The Donald?

Throwing Good Money After Bad - All booms eventually go bust.

We all remember the stock market crash of 2000, and most of us remember the real estate crash after the implementation of the 1986 Tax Reform Act. Today, many people are anticipating another real estate crash.

Unfortunately, despite our understanding of booms and inevitable busts, it's always near the top of a boom that "dumb money" buys in. Currently, this has set the scene for a potential market bust of which few people are aware.

About a year ago, I wrote a Yahoo! Finance column warning readers that the real estate boom was over. How did I forecast the end of the boom? I got my hot tip from the cashier at my local Safeway supermarket.

While she was tallying the cost of my apples, broccoli, and steaks, she handed me her new real estate agent's card and invited me to call her for my next real estate investment. Moments later, I was home writing that column. As my rich dad used to say, "When dumb money chases smart money, the party's over." Needless to say, many real estate agents and investors wrote me nasty notes.

For the next two years, I'm cautioning people to watch their ratios between good debt and bad debt, and keep liquid reserves such as cash, gold, or silver.

Good debt is debt that makes you rich. An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt.

Most people don't have good debt -- all they have is bad debt. Bad debt is debt that makes you poorer. I count the mortgage on my home as bad debt, because I'm the one paying on it. Other forms of bad debt are car payments, credit card balances, or other consumer loans.

The good news is that during deflationary times, smart money reenters the market, so crashes are great for smart people with smart money. Instead of listening to the optimistic economists, then, you should eliminate bad debt and improve your debt-to-equity ratios on good debt.

February 21, 2007

Yes, it's time to make some noise. How many more lenders need to implode until everyone is awoken from their slumber.

IT'S ALL FALLING APART NOW FOLKS. FAST. HARD. AND BAD. THE GREAT UNWINDING IS HERE. THE UNITED STATES HOUSING MARKET PONZI SCHEME IS CRASHING. FRAUD IS RAMPANT. FLIPPERS ARE F*CKED. THE SYSTEM GOT GAMED. AND THE MONEY AIN'T GETTIN' PAID BACK.

There. I hope that helps. If it didn't, read Fleck's post this week (written before Novastar melted down today):

The housing ATM rot is just the beginning - Lenders New Century and HSBC finally admit problems, but the bulls still don't want to see the obvious: A negative economic reaction is inevitable.

From New Century came word that (a) its financials were basically no good and that (b) it hadn't properly accounted for loans it had sold to other institutions and that might now be sent back.

Even more important was the news from HSBC, regarded as a good operator, which revealed that it was going to take its mortgage loan-loss reserves from $8.8 billion and change to $10.6 billion and change

"Its systems for screening subprime borrowers and for assessing the default risk they posed were flawed. Many of those loans have soured, sometimes quickly. The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected."

Yes, there is a consequence To which I would respond: No kidding. How clever, how smart, how awake did you have to be to know that that was going on and that this was going to be the outcome?

Even though stock market participants have been willing to suspend disbelief, we still face the problem of an unwinding real-estate market, its impact on the economy and its impact on the stock market. Of course, the latter would also reinforce the prior two problems.

As I said, all of these problems have been hiding in plain sight. But the fact that folks want to pretend the problems don't matter -- and push out the moment in time when they react -- doesn't change the reality that the risks are extraordinarily high these days. Pretending will only make the dislocation bigger.

The recent collapse in the shares of New Century demonstrates what I expect to happen literally any day now in technology and the tape at large, although predicting when is impossible. Folks should not underestimate the power of the trickle-up in the rot from the housing ATM finance mechanism.

The race to jail between insider sellers Bob Toll and Angelo Mozilo seemed to be neck and neck, but I'd bet more on Mozilo today, as not a word yet from Countrywide about their impending disaster and write-down. I guess they're still adding up the carnage.

The loans ain't gettin' paid back folks. Massive mortgage fraud, flaky flippers and plummeting prices have destroyed anyone playing in the subprime pool.

Fannie and Freddie know it too. And we're talking TRILLIONS when it comes to those impending disasters.

Here's the latest dot-subprime to predictably blow up. Now there's blood in the streets, and we're just starting...

(disclosure - I'm gleefully short CFC and LEND at time of writing, and sure wish I was short 'em all)

NovaStar Flames Out

Shares of NovaStar Financial plummeted 26% after the real estate investment trust became the latest casualty of rising problems in the subprime mortgage market.

The Kansas City, Mo., mortgage lender reported a loss of $14.4 million, or 39 cents a share, compared with a profit of $26.4 million, or 84 cents a share, a year earlier.

"The credit performance of our portfolio, and specifically our 2006 originators, deteriorated during the fourth quarter, resulting in impairments on mortgage securities and additional loss provisions for loans held-in-portfolio in the REIT," says Scott Hartman, NovaStar's CEO. "Also, our gains upon securitization were reduced during the quarter because of lower whole loan prices. Furthermore, during the fourth quarter, we experienced a greater level of loan repurchase requests due to early payment defaults than we have historically."

The news comes just two weeks after shares in NovaStar rival New Century blew up after the company warned it was experiencing similar problems.

Here's how it goes down. Doesn't matter if it's land in Tokyo, tulip bulbs in Holland, or pre-construction condos in Phoenix.* My cousin Joey just made some money selling his home* Hey, my neighbor is putting his house up for sale for way more than we both paid* Oh, man, I'm rich! My home just went up in value 20%!* Maybe I should buy some investment property* Another house just sold down the block for 100% more than the guy paid* Hello, Cheap Mortgages with No Money Down? I'd like to take out a loan on an investment condo* Everyone is getting rich buying and selling homes! It's so easy! Why work for a living* Yes, you're right Mr. New Home Sales Guy, why buy one when I can buy two! Let's do it* You're right, Mr. Cheap Mortgages with No Money Down, I should take advantage of that no-doc, no-down, option-ARM thing you're recommending. Are you sure I can lie about my income? Cool! I'll buy five of those new condos, not two!* Grandma, you gotta buy another condo in Florida! We're all getting rich rich rich rich!!!!!* Hmmm.. I wonder if being $4 million in debt is OK, after all I only make $40,000 a year. But it must be if the bank would lend me that kind of money* OK, I've closed on all my new condos, time to flip them for massive profits!* Hmmm... it's been 30 days and no offers. And it is strange that nobody actually LIVES here in this new condo building. I wonder why that is.* It's the damn realtor's fault, why can't they sell my units. I'm gonna fire 'em and get a new one! One that knows the market!* OK, it's been six months, and still no buyers, and I'm out $30,000 in carrying costs so far. Hmmm... That's more than I bring home in a year. My credit cards are getting closed to maxed out. Oh well, it's OK, I'll just drop the price a bit and still be rich rich rich rich!* OK, it's been a year. I can't make the payments anymore, still no offers, I'm on my tenth realtor, still nobody lives in this damn condo building and what happened? My realtor and mortgage broker and appraiser and David Lereah and everyone said I was going to be rich! It's their fault.* I can't believe I just got foreclosed on. I've lost everything. Oh well, it wasn't my money after all and in a few years my record will be clean and I'll try again! I do wonder though who did take the loss on all my condos, since it wasn't me? Hmmm...

I did the calculator for rent vs. own for Phoenix. I assumed a $500,000 house, 5% down, sell in 5 years, and finance with a 30 year fixed 6.5%.

Owning would cost $192,000 more than renting over those five years based on their calculations. And that assumes $3000 a month in rent! I think on a $500,000 house in Phoenix you could rent the place for $1200 or so a month. Oh dear god.

Take it for a spin and you'll see why yes, fundamentals do matter. And it's all about the P/E. It's ALWAYS about the P/E.

Let me try to clear this one up... Lots of bubblesitters and bitter renters battling desperate homedebtors on HP threads it seems. If you buy a home today vs. renting, you are a fool. Renting is significantly cheaper on a monthly basis than "owning", and if you "buy" you'll lose not only the extra monthly cash flow vs. renting, but more importantly you'll also the negative depreciation to deal with. In addition, you'll have the transaction costs of buying and selling, and you'll likely be locked into the home or a significant loss for years, unable to move for a new job when you lose your current one or are offered a better one during the upcoming recession.If you "own" a home you "bought" pre-bubble, you're doing fine (unless you did equity-extraction). "Owning" your home today is likely at a similar monthly cost to renting, if you bought pre-bubble. The only issue you have to sleep on is that you'll be losing some of your possible equity every day now that homes are depreciating vs. appreciating. However, if you took out HELOC's, you screwed yourself.The smartest financial play for "owners" would have been to sell at the peak, over a year ago, cash in, put the money to work, and rent. Then when prices stopped falling, buy again.The smartest financial play for renters who've never "owned" would have been to buy a home pre-bubble, then sell at the peak and rent again. If you've always rented and didn't buy and sell, you missed an opportunity to make some money off the stupidity of your fellow man during the greatest ponzi scheme the world has ever seen.

February 19, 2007

Ah, let's all revisit the sage advice of little-girl-playing-grown-up-real-estate-investor Kendra Todd, from September 2006. Too bad people can't sue her, or Yahoo for giving her this platform. But it is nice to know Donald Trump will be declaring bankruptcy soon.

Is the Real Estate Market in Bubble Trouble?

By Kendra Todd, winner of "The Apprentice 3"September 26, 2006

You can't go anywhere without hearing people talk about "the real estate bubble." Such talk drives me to distraction, and I'll tell you why. It's because there is no real estate bubble. Bubbles are for bathtubs.

Despite a thousand articles in Sunday newspaper real estate sections, the bubble is a myth. The real estate markets in many areas are going through a normal correction cycle. I'm going to tell you how to recognize the signs of a correction in your market, how you can avoid getting sucked into "bubble trouble" and how you can even benefit from the current environment.

A bubble is a market in which the value of the key asset is inflated based on speculation and psychology. Because of this, true bubble markets can burst overnight when something happens to shatter the perception of value.

That's why the Internet boom of the late 1990s was a true bubble; people suddenly realized that ninety percent of the dotcoms were companies with no way to make money. Talking about a bubble implies a sudden burst, and real estate does not work that way. You don't go to sleep one night with your house worth half a million dollars and wake up to find it's lost half its value.

Pat Buchanan (R): "Iraq is the worst strategic blunder in our lifetime. And for it, George W. Bush, his War Cabinet, and the neoconservatives who plotted and planned this war for a decade bear full responsibility."

Sen. Harry Reid (D): "This (Iraq) war is a serious situation. It involves the worst foreign policy mistake in the history of this country"

Helen Thomas (AP): “This is the worst President ever. He [George W. Bush] is the worst President in all of American history.”

Sen. Chuck Hagel (R): "I think this speech given last night by this president represents the most dangerous foreign policy blunder in this country since Vietnam if it's carried out."

Fred Dattolo (author): "When it starts to unravel, it will likely lead to the biggest bubble bust in world history, hurtling the U.S. economy into chaos, reminiscent of the Great Depression—or worse."

January 2007 AP/AOL poll: Two-thirds of Americans, 66 percent, think the country is on the wrong track.

GAO Report 2006 recapped: The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

Joe Scarborough (R): "In Bush’s Washington, the capital is a much clubbier place where everyone in the White House knows someone on the Hill who worked with the Old Man, summered in Maine, or pledged DKE at Yale. The result? Chummy relationships, no vetoes, and record-breaking debts"

HSBC moved $10 billion from the "denial" column straight to "capitulation" the other day. The entire subprime industry, which fell off a cliff in the past few weeks, went from "euphoria" to "despondency" overnight it seems. And the contagion will spread. It always does during a the mania unwinding stage.1.9 million American homes currently listed in foreclosure are in "desperation" stage.2.2 million Americans who took out toxic loans and are expected to default, well, they've gotta be in "fear" stage now if they're paying attention.Millions of REIC employees / contractors / commission hungry sharks are in "fear" stage today, wondering when the axe will fall, and how long they'll have to eat ramen.The 2.1 million homedebtors with an empty home on the market and no buyers in sight have gotta be in some stage of "fear", "desperation" and yes, "panic" today.One would-be real estate mogul who is now selling off his portfolio of failure and days away from bankruptcy and a knock from the FBI, well, even he's evidently moving past denial lately. HP'ers, you'd have to be insane, clueless,corrupt, stupid and seriously the greatest fool on earth if you're still in "euphoria" or "anxiety" stage. Man, the train left the station, a long, long time ago. When will Americans (and the world) finally get on board? Or are they?

Liars. Scoundrels. Terrible businessmen. Discredited hacks. Watching the NAR implode at the same time housing implodes is quite poetic, wouldn't you say HP'ers?

I think the only ones still drinking their Kool-Aid are the rip-and-read MSM, and even many of them are starting to actually think before they write. Not all of 'em, but some. It's a start.

But here's the reporter at Realty Times allowing the NAR spinmeisters to serve more unfiltered Mountainberry Punch! Hey Kool-Aid!

NAR Says Existing Home Sales HaveHit Bottom

Despite wailing from banks that late or non-payments on sub-prime loans are sinking their profits, continuing fear from homebuyers that they're catching a falling knife, and predictions from housing analysts that the pain is far from over, the outlook looks sunny for housing, says the National Association of Realtors.

Analysts say that a number of causes kept buyers away including affordability, the financial media, rising gas prices, rising mortgage interest rates, and buyers' fear of becoming "the greater fool."

Housing bulls suggest that the drop in housing sales is primarily due to fear -- that housing fundamentals are actually better now than they were during record housing conditions.

David Lereah, NAR's chief economist, said it appears the fourth quarter was the bottom for the current housing cycle.

"This information confirms 2006 was the year of contraction, and hopefully the fourth quarter was the bottom of this current business cycle," he said. "Home sales are leveling at historically high levels, and examination of data within the quarter shows home prices stabilizing toward the end. When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices."

NAR President Pat V. Combs: "Since the typical owner stays in a home for six years, it's more useful to look at the five-year comparison for metro area home prices -- most of them are seeing strong gains,"

Mortgage costs for many at over 3/4 of their take-home pay. Home prices 24 times average incomes. Soaring foreclosures and insolvencies nationwide.

Yup. Ponzi Scheme. Executed perfectly here in England. A country that thought soaring home prices were a good thing for society, that everyone could get rich, that property prices can only go up and up and up and up, and that inflation has nothing to do with housing costs - thems are savin's after all ma!

They do call it the "Property Ladder" over here, and you know nobody every goes down the ladder - only up! Right? Right?

We'll see...

MORTGAGE COSTS ARE CRIPPLING

Daily Express (UK)

Home owners are having to fork out crippling mortgage payments which eat up as much as three-quarters of their take-home pay. Millions struggling with record utility bills and rising interest rates are paying an average of 51 per cent of their net income.

But, with some parts of the country seeing house prices rocket to 24 times the average salary for the area, many are being forced to pay up to 71 per cent of their wages to put a roof over their heads.

The figures were revealed in a report which makes clear the shocking financial burden being shouldered by hard-working families because of soaring property prices.

The grim report reveals that the property boom pushed average house prices to more than six-and-a-half times salaries last year – up a formidable seven per cent from the previous year’s figure. It led experts to warn that while rising prices are felt by many to be positive, any significant increase in interest rates could have a damaging impact on households.

Rob McPherson, of management consultants Hay Group which produced the study, titled Home Truths: Pay and Property 2006, said: “Rising house prices are outstripping take-home pay, placing enormous pressure on home owners.“Increased house values may make consumers feel more wealthy, but the truth is that the buying power of wages has taken a serious hit when it comes to property.

Citizens Advice policy officer Peter Tutton said: “We are already seeing a rapidly growing number of people falling behind with mortgage payments and in some cases threatened with repossession.

“We know that some people are taking on mortgages that stretch them to the limit. Increases in interest rates could spell disaster.”

February 17, 2007

The housing bubble is over my friends. We're now, without question, firmly in crash stage. So as of today, 3,000,000 page views, 2,500 posts and a year and a half later, let me now introduce:

HousingPANIC - The Housing Crash Blog with an Attitude Problem

Yup, you'll continue to get housing bubble (RIP) and crash news, political and fiscal commentary, and until this thing is over, a serious attitude problem.

One day HP'ers, when it costs more to rent than own, and real estate clerks and the corrupt REIC have been forever defeated, we'll move on to better and brighter topics. Hope will spring eternal, and we'll be better off as a country having experienced this historic crash. I truly believe that.

I see a shining city on a hill. A thousand points of light. Or something like that.

Until then, F the REIC! F real estate clerks! F David Lereah! And F the late great housing bubble!

Glengarry Glen Ross is a 1992 movie, based on the 1984 Pulitzer Prize and Tony-winning play of the same name by David Mamet, who adapted it into a screenplay for the film. The film shows parts of two days in the lives of four desperate real estate agents (Pacino, Lemmon, Harris and Arkin) who are prepared to engage in any number of unethical and/or illegal acts (from lies and flattery to bribery, threats and intimidation to burglary) in order to sell undesirable real estate to unwilling prospective buyers ("leads") while the put upon office manager (Spacey) awaits for them to make their sale after the hardnosed corporate boss (Baldwin) gives marching orders to do their jobs.

I think someone needs to tell all the other Phoenix real estate clerks that things have changed. All those big dreams, those millions and millions you were going to make in real estate?

Poof.

Get ready for the used car lots full of repossessed Boxters and BMW's (again), get ready for declining sales at Tommy Bahama, and get ready for a rush on ramen noodles at Safeway.

(Note - that's a real picture of the real estate clerk goober interviewed in the article)

If Christopher Guest ever films a mockumentary about real estate agents, he could do worse than to make the trip to Phoenix and get a load of Brett Barry. With a George Michael beard, bleach-white teeth, perma-tan and a smattering of gold jewelry, Barry darts around his office in a strip mall, his face lighting up whenever another human comes within shouting distance.

Specializing in a planned community near Scottsdale, Barry lords over his territory in a canary-yellow Porsche Boxster whose vanity plate reads SAYSOLD. "It's a realtor thing," he says, half apologizing for, half drawing attention to his chariot. Locals tell me today is the coldest day of the year in Phoenix, but that doesn't dampen Barry's enthusiasm. "Let's put the top down!" he calls out as we get in the sports car for a tour of his domain.

Barry is skeptical of Zillow's valuations, especially in a market like Phoenix, where so many properties are languishing. If the Zestimates are based on sales, then Zillow is missing a whole lot of data. He points at a stack of pages from the MLS (for Multiple Listing Service, the nationwide database of properties for sale). "Look, 213 days, 353 days, 529 days," he says, referring to how long each house has been available. "There's a lot of fat in the market. Prices are still too high."

For any homeowner looking to sell, it's a gloomy message: These are the worst of times. Not long ago, Phoenix was the nation's fastest-growing market. The median price rose 55 percent in 2005. Agents were closing deals on the hoods of cars; investors flipped homes without ever moving in.

Fast-forward to early 2007: Throw a rock in any direction, and it'll bounce off a FOR SALE sign. "There are 45,000 listings in the Phoenix MLS, and that number hasn't changed in six months," Barry says as we cruise among lookalike stucco homes. With every passing week, the number of houses on the market rises, increasing the downward pricing pressure. "It's like a freeway pileup."

"You look out on the street and see five to ten houses for sale, but many people still don't believe things have changed," he says, shaking his head at a dirty carpet. "The average seller says, 'I need to get this much out of our house to move up.' But the market doesn't care."

February 16, 2007

Millions will go unemployed during this REIC downturn. Just like the telecom implosion in 2000, way too much capacity, way too little demand.

The unemployment will only make the housing ponzi scheme unraveling even worse.

Panic is knocking. Knock. Knock. Knock. Knock. Can you hear it? You should.

WASHINGTON (MarketWatch) - U.S. home builders started the fewest homes in nearly a decade in January, as housing starts plunged 14.3% to a seasonally adjusted annual rate of 1.408 million, the Commerce Department reported Friday.

It's the lowest rate for starts since August 1997. Housing starts were down 37.8% compared with January 2006.

The starts figure was much lower than expected on Wall Street, where economists were looking for a 2% drop to 1.60 million annualized units. The permits figure was close to the 1.58 million expected by median forecast in the MarketWatch survey of economists.

The stunning drop in home building indicates that builders are scaling back their plans on a massive scale to work down the excess inventory of unsold homes on the market. Hopes that a bottom in the housing market has been reached will have to be re-evaluated

Starts of single-family homes dropped 11.2% to a seasonally adjusted annual rate of 1.108 million, the lowest since August 1997. Permits for single-family homes fell 4% to 1.121 million, the lowest since December 1997.

Two weeks ago, the Commerce Department reported that the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate. Economists said there are 1 million excess homes.